Good Questions Trump Right Answers

March 20, 2013 12:00 AM

Kevin SpaffordOwnership is hard. It requires the ability to accept responsibility, make decisions and commit resources. If you don’t like hard work, risk, working with others in a team or accountability, don’t become an owner.

For most families, the succession planning conversation will involve issues such as equal versus fair, decision-making authority and fair pay. These pervasive topics can have a paralyzing effect in achieving a successful outcome.

But the answers to an owner’s concerns may be simpler than you think. Although each situation is unique, there are a number of factors most owners will need to consider.

The following 10 questions may help align your goals:

1. Do you have sufficient resources to fund retirement if the business is transferred during your lifetime?

  • If not, you may need to retain a business interest, receive some income in return for equity or both.

2. Do you want the active children to receive the business in case of premature death (before retirement)?

  • If so, are sufficient resources available to provide financial security for your spouse and dependents?
  • If not, you may consider a sale or redemption of the business in case of premature death.

3. Will a transfer of the business to the active children create conflict among the children if the inactive children do not receive a share of your wealth until the estate is settled?

  • If so, you may consider transferring ownership to the active children and other assets to the inactive children at the same time.
  • Alternatively, you may consider allowing the active children to purchase ownership on favorable terms.

4. If there are multiple children who are active in the business, are they capable of working harmoniously with each other?

  • Or, will it be necessary to transfer a controlling interest to one?

5. Are the children who are active in the business capable of running it, or should transitional management options be considered?

  • Transitional management may also be considered if you have minor children who are not prepared for leadership, who have not yet made a career decision or both.

6. Are your children married?

  • You may consider making transfers of business assets to a trust for the benefit of the child or putting restrictions on a person’s ability to sell the stock, such as a right of first refusal or a mandatory redemption.
  • Another important consideration is make a well-written buy/sell agreement that protects ownership in the business from the fallout of an unpleasant divorce settlement.

7. Do the active children want to continue the business?

  • If not, then selling the operation to a third party, such as a loyal employee or outside buyer, may be the best course of action.

8. Are the inactive children in the family comfortable not receiving an interest in the business?

  • If the company has the potential to go public or there is a possibility for significant appreciation in value, the inactive children may wish to attain and hold a non-controlling interest in the business.

9. Do business-related financial discussions, management concerns and personnel matters blur the lines between family issues and business decisions?

  • If so, you may consider establishing a family council to provide a governance structure to better manage the family/business issues.

10. For children not active in the family business, are you sure they chose not to be involved or have they simply been overlooked?

  • Although it may seem obvious, some family members who are not involved have not been asked or don’t know who to ask.

A good question can be more informative than the right answer. Using focused inquiries to learn more about the issues can help you achieve your succession planning dreams.

Kevin Spafford serves as Farm Journal Media’s succession planning expert. His firm, Legacy by Design, guides agribusiness owners through the succession planning process. Send questions to Legacy by Design, 2550 Lakewest Drive, Suite 10, Chico, CA 95928, (877) 523-7411 or

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